The International Monetary Fund (IMF) on Wednesday urged the United States to reduce its widening fiscal deficit as the most effective way to reduce its current account and trade deficits, which are considered too large.
IMF Managing Director Kristalina Georgieva said the results of the annual review of US policies showed that the current account deficit was at a high level and that this was also acknowledged by the current administration.
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Previously, the US Supreme Court struck down emergency tariffs introduced by Donald Trump. In response, his administration used Section 122 of the 1974 Trade Act to implement replacement tariffs with the aim of improving the country's balance of payments.
However, IMF Western Hemisphere Director Nigel Chalk stressed that the most effective way to narrow the current account deficit is through reducing the fiscal deficit, not relying on tariffs.
The IMF estimates the US current account deficit to be around 3.5% to 4.0% of GDP in the near term.
In its first Article IV review of the Trump administration’s policies, the IMF expects US economic growth to remain resilient at 2.4% in 2026, in line with its January forecast.
However, inflation is expected to return to the Federal Reserve’s 2% target only by early 2027 due to uncertainty over the trajectory of prices and growth.
The IMF also warned that the US fiscal deficit is expected to remain high at 7% to 8% of GDP in the coming years, more than double the target set by US Treasury Secretary Scott Bessent.
Consolidated general government debt is projected to rise to 140% of GDP by 2031.
While the risk of US government financing stress remains low, the IMF stressed that the rising debt-to-GDP ratio and the growth of short-term debt pose increasing stability risks, not only to the US economy but also to the global economy.
